Homes becoming more affordable

Washington Times:

Home prices are falling at a record pace and are down by 6 percent or more from their peaks, but economists say that may be just the beginning.

Computer models show that home prices remain as much as 50 percent too high in major cities, where even households with twice the U.S. median income of $47,845 often are unable to afford median home prices ranging from $400,000 to more than $600,000.

The overvaluation of homes has created a buyers strike as potential buyers sit on the sidelines waiting for prices to fall. How much prices have to drop to bring buyers back into the market has become a critical question for the housing market and the economy.

Hanging in the balance is not only the health of the housing and finance industries but also the accumulated wealth and chief asset of the nearly 70 percent of Americans who own their homes.

James Haffly, an Alexandria defense worker, would like to buy a house in the Washington area but thinks that prices are way too high and must come down substantially.

"Housing is out of reach for many folks here unless they have a rich relative," he said, noting that having a high-income, dual-earner family doesn't suffice anymore to buy a typical "starter" home for about $400,000.

He's hoping that the 1 million to 2 million foreclosures predicted nationwide this year will help to drive down prices to affordable levels.

"I mean, here we are at $125,000 a year, and to buy a home on the low end means spending 40 percent of our take-home pay. Something ain't right. I wouldn't buy in this market, not with rent amounts at half or less of what a house payment would be."

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The rule of thumb is that the house payment should not be more that 25 percent of your take home pay so Washington area housing has a ways to go before it hits bottom. It has been overpriced for some time. When he says starter home he means small two bedroom with a basement row houses that are 50 and 60 years old in Alexandria. The Washington area has limited supply and transportation is a problem if you are not near a subway station. It was this exorbitant cost that caused many to op for the sub prime loans which in turn sustained the price. In areas where housing is more affordable like Houston, they have not seen as much decline in the market.